Individually rational buyback contracts with inventory level dependent demand

Lokendra Devangan, R.K. Amit, Peeyush Mehta, Sanjeev Swami and Kripa Shanker

International Journal of Production Economics, 2013, vol. 142, issue 2, 381-387

Abstract: In this paper, we consider a supply chain coordination problem when demand faced by a retailer is influenced by the amount of inventory displayed on the retail shelf. We assume that shelf space inventory is used as one of the levers to stimulate demand. Our objective in this research is to design individually rational contracts that coordinate the supply chain when the retailer faces inventory-level-dependent demand. We consider a buyback contract where any leftover inventory at the retailer can be returned to the supplier at a pre-specified terms of the buyback contract. The existing buyback contracts in the supply chain coordination literature do not guarantee the satisfaction of individual rationality constraint. A continuum of buyback contracts coordinate the supply chain. The contracts may differ on the basis of division of profits resulting in contracts that may not be individually rational. This motivates us to use the Shapley value from the cooperative game theory which ensures fairness and individual rationality in the buyback contract. We also provide managerial insights into the design of the contracts and analyze the impact of shelf space inventory on the contract parameters.

Keywords: Inventory level dependent demand; Buyback contracts; Shapley value (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:142:y:2013:i:2:p:381-387

DOI: 10.1016/j.ijpe.2012.12.014

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